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Nobody likes to witness a family argument—much less get pulled into it. But the schism between auto industry lobbyists and auto company executives is hard to ignore, and the consequences are too important. The disagreement is about the need and wisdom of producing more fuel-efficient cars. And with this week’s national average price for a gallon of gasoline at $3.88 causing financial hardship, it’s heating up.

Lobbyists in a State of Denial?

The Alliance of Automobile Manufacturers—the industry’s largest lobbying organization—in a recent Wall Street Journal article claims that $4 gas is still not high enough for consumers to make any real changes in their car buying decisions and that new pollution and fuel efficiency standards should fluctuate with gas prices.

The AAM’s most vociferous and long-held arguments are that it’s just too expensive to make high-mpg vehicles, consumers don’t want them, and that it will cost American jobs. The group points to industry research showing that fuel-mileage and emissions proposals could raise the cost of a vehicle by as much as $6,400 by 2025, and that consumer will never pay more for efficiency. Therefore, light-vehicles sales would drop by 25 percent, killing about 220,000 jobs. As I’ve explained in a previous blog, the cost claim is based on a fundamentally flawed study which has been thoroughly refuted, and with it, the job killing claim.

The auto lobbyists appear to be in particular state of denial when it comes to consumer demand for fuel efficiency. Gloria Bergquist, vice president of communications and public affairs for the industry group, claims that Europe’s $8 a gallon price is the level at which consumers move to fuel-efficient vehicles in large numbers.

But the actual sales numbers show that at less than $4 gallon last month, sales of hybrids shot up 46 percent compared to the previous March, three times faster than the market average. At seven percent market share, hybrids and other fuel-efficient cars now comprise the same market share as traditional, truck-based SUVs.

The AAM appear to be proposing an unworkable and counterproductive system that would have fuel efficiency and pollution standards rise and fall with gas prices. Ms. Bergquist’s argument is that when gas hit $4 in 2008, small cars got big, but claims it was only temporary until the price at the pump dropped back down again.

Under the AAM plan, regulators would need to periodically monitor gas prices, and scale back on fuel efficiency and pollution standards whenever the price at the pump drops. But as the past two decade shows, the auto industry needs three or four years planning lead time and cannot base its product plans on short-term, volatile conditions in the oil market.

The View from the Corner Office

So it’s no surprise that the lobbyist arguments aren’t even winning over executives at the very companies they represent.

As reported in Bloomberg, New York Times, and the Wall Street Journal, Ford announced this week reported its largest first-quarter profits since 1998—despite surging gas prices. How did that happen? Alan Mullaly, Ford’s chief executive, told Bloomberg that his company is better able to cope with rising fuel prices now than in 2008, when it was too heavy on trucks and large SUVs. Ford suffered more than $30 billion in losses from 2006 to 2008.

But by focusing its lineup on fuel economy, he turned the ship around. The Euro-influenced, fashion forward Fiesta gets 40 mpg on the highway, and the new Explorer boosted its fuel efficiency by 30 percent compared to the last version. The company believes that as much as President Mark Reuss told the Detroit Press. “It only gets better as gas prices change.”

Honda, Subaru, Nissan, Kia and Hyundai all introduced more fuel-efficient compact and subcompact models. Several of the new models are 20 or 30 percent more fuel efficient than previous versions. Honda’s new Civic Hybrid gets 44 mpg in the city and highway. Even Porsche is getting in the game, introducing its most fuel-efficient vehicle ever, the Panamera S Hybrid.

60 MPG by 2025 is the Sensible Solution

There is a sensible solution to settle this squabble that everyone can rally around: setting long-term, stable standards that deliver 60 MPG by 2025.

60 MPG by 2025 delivers the long-term predictability and certainty that automaker executives need to plan new models and invest in new drivetrains. And it will deliver the fuel-efficient cars that our country needs to cut our dangerous dependence on oil, reduce dangerous pollution and protect consumer pocketbooks.

In the case of 60 MPG, what’s good for the country is good for the auto industry.

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Yegor

“Gloria Bergquist, vice president of communications and public affairs for the industry group, claims that Europe’s $8 a gallon price is the level at which consumers move to fuel-efficient vehicles in large numbers.”

There was a massive shift to smaller cars in the last 3 months!!!:
Small car market share grew from 16.5% in December to 20.5% in March.
Middle car market share grew from 18.4% in December to 21.6% in March.
Combine Small and Middle car market share grew from 34.9% in December to 42.1% in March.
Large Pickup market share decline from 13.0% in December to 10.2% in March.
Crossover market share decline from 26.3% in December to 24.1% in March.
SUV market share decline from 8.0% in December to 6.4% in March.

I don’t think higher CAFE standards alone will reduce greenhouse gases significantly. I recently bought a Honda Insight and I tended to drive more miles. If an automaker’s entire line up of cars has an increase in fuel efficiency then people who normally would buy a compact might choose to buy a mid sized car. With more fuel efficient cars people are less likely to used mass transit. Those who believe higher CAFE standards will save us should consider Jevon’s paradox. If Jevon were alive today he would be advocating a carbon tax and NOT higher CAFE standards.

Eric

What a bunch of crap by the lobbyists! I have vowed to never buy a vehicle again that doesn’t get significantly better mileage than my ’02 Civic. And I don’t mind paying a premium to stick it to big oil and breathe cleaner air. We are going to be starting a family soon which means the Prius V or the C-Max Hybrid (if it comes out soon enough) will likely be my next purchase.

Also, most people don’t realize 60MPG CAFE really equates to only about 43MPG on the window sticker. I think this point needs to be explained in the media more often, as I think this will eliminate some of resistance to improving the standard that much.

Anonymous

I would not be surprised if Prius v is delayed by a few months, say to late summer/early fall. BTW, I wonder what’s the price of Prius v? I worry that some will have sticker shock. Why not a Prius or the new Civic hybrid? They are already available.

jims1961

Eric,

I know what you are saying is true. I recall reading somewhere that CAFE would only be enforced using the EPA test method that was used prior to 2008. The EPA test method was changed in 2008 to be more conservative. I’d like to learn more about this. Do you have a link to an article that explains this in detail?

Eric

Anon,

Yes I’m sure the V will be delayed until fall at least. I really want something with more space than I have now, so the regular Prius is certainly still an option but the Civic is not. But I would prefer larger so I am leaning toward the V or C-Max Hybrid.

Eric

No I don’t have a link, but the certainly make it all confusing don’t they?

Anonymous

@Jim, I think a new trend is already emerging. From a NYT article that I recently read, higher gas price and a depressed economy already moved home buyers more towards ‘smaller’ (relatively speaking) houses closer to urban centres and less towards large new houses in new developments further away.

1. Electric, Hybrid cars are more complex therefore require more labor to produce. Therefore no job loss – actually may be more jobs.
2. “The Alliance of Automobile Manufacturers”, how long will you think about yourself? Think kind gas price hikes destabilize economy leading to recessions and depressions. We have to stabilize the energy price by turning to electric and extremely fuel efficient cars.

Anonymous

@Jim, AFAIK, CAFE is based on laboratory measurements, dates back to the 70’s, generated by the EPA during its testing of vehicles for emissions levels and for determining compliance with Federal emissions standards.

cld

“I know what you are saying is true. I recall reading somewhere that CAFE would only be enforced using the EPA test method that was used prior to 2008. The EPA test method was changed in 2008 to be more conservative. I’d like to learn more about this. Do you have a link to an article that explains this in detail?”

“Today’s proposal does not alter the FTE and HFET driving cycles, the measurement techniques or the calculation methods used to determine CAFE. EPCA requires that CAFE be determined from the EPA test procedures in place as of 1975 (or procedures that give comparable results), which are the city and highway tests of today, with a few small adjustments for minor procedural changes that have occurred since 1975.25”